Hanwha Chemical an Unexpected Beneficiary of Coal Price Hike

September 11, 2017 08:48|09 11, 2017 11:47

As international coal prices are on the rise, Hanwha Chemical's prospect is getting brighter. That's because the Korean company uses naphtha to produce polyvinyl chloride (PVC) while its rivals in China are largely based on coal, which will make it more price competitive vis-a-vis the Chinese chemical producers.

According to Korea Resources Corp. and chemical industry sources on September 10, the freight-on-board (FOB) price of bituminous coal out of the Chinese port of Qinhuangdao was US$95.06 as of September 1 per ton from $81.58 on June 2, up 16 percent in three months.

Accordingly, the supply of PVC has strained with its price rising. The average PVC price in Asia has increased about 10 percent to $955 as of September 7 from $868 in June.

The main reason for the coal price on the rise in China has to do with the fact that the Chinese government has strengthened its regulation on the environment while restructuring the coal industry. Currently the government is forcefully reducing the capacity of the coal industry as part of a move to improve the efficiency and financial soundness.

After cutting the coal output by 290 million tons last year, the Chinese government is set to reduce another 150 million tons this year. In the second half of this year, the coal price is likely to rise further as the coal demand rises during the winter season.

In addition to Hanwha Chemical, other Korean chemical producers such as LG Chem are benefiting from all this. Hanwha and LG Chem are producing 900,000 tons and 1.33 million tons of PVC a year.